lect7_8 - 1.201 Introduction to Transportation Systems...

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1.201 Introduction to Transportation Systems Transportation Costs Carl D. Martland Courtesy of Carl D. Martland. Used with permission.
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Transportation Costs • Introduction & Motivation • Duality of Production Functions & Cost Functions • Types of Cost Functions • Engineering Cost Functions
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High Costs & Poor Productivity Peak Traffic Demands Cause Delays at Bottlenecks Clark Junction, CTA Photo: C.D. Martland, January 2003
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High Costs & Poor Productivity: Capacity for Peak Loads Tate Modern Subway Station, London Photo: C.D. Martland, October 2002)
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High Costs & Poor Productivity: Limits on Vehicle Size/Weights Photos: C.D. Martland
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Improving Costs & Productivity: Tailoring Services to Demand San Juan, Puerto Rico (Photo: C.D. Martland)
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Improving Costs & Productivity: Information & Control Photo: C.D. Martland
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Improving Costs & Productivity: Increasing Vehicle Size/Weight Photos: C.D. Martland
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Duality of Costs & Productivity • Cost Function – Minimize cost of resources required to produce desired services • Production Function – Maximize value of output obtained from given resources
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Basic Economic Concepts- Differing Perspectives of Economists and Engineers Production functions Economists either assume this is known or try to estimate a very aggregate model based upon actual performance Engineers are constantly trying to "improve productivity", i.e. find better ways to use resources to produce more or better goods and services Cost functions Both use total, average, variable, and marginal costs; engineers go into much greater detail than economists Short-run and long-run cost functions Economists typically focus on effects of volume and prices Engineers typically focus on costs and capacity Duality of production and cost functions
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Using Average and Marginal Costs Profitability/Subsidy Requirements Comparison of average costs and average revenue Average revenue per trip is a natural way to look at revenue, so this becomes a useful way to look at costs Profitablity of a particular trip Comparison of marginal cost and marginal revenue Economic efficiency (or business common sense) Price = MC (Price > MC) Regulation of industries with declining costs May need to segment markets and have differential pricing in order to cover total costs
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Fixed vs. Variable Costs Fixed Costs Unaffected by changes in activity level over a feasible range of operations for a given capacity or capability over a reasonable time period For greater changes in activity levels, or for shutdowns, the fixed cost can of course vary Examples: insurance, rent, CEO salary Variable Costs Vary with the level of activity Examples: construction labor, fuel costs, supplies Incremental Costs Added costs for increment of activity
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Fixed, Variable, and Incremental Costs Total Cost (V) = Fixed Cost + f(volume) Avg. Cost (V) = Fixed Cost/V + f(volume)/V Incremental Cost(V0,V1) = f(V1) - f(v0) Marginal Cost (V) = d(Total Cost)/dV = f'(V) (Assuming we in fact have a differentiable function for variable costs!)
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Long-Run & Short-Run Costs Long-run costs All inputs can vary to get the optimal cost
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lect7_8 - 1.201 Introduction to Transportation Systems...

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